<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 10, 1997
Commission File Number: 1-6828
STARWOOD LODGING
TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-0901263
(I.R.S. employer identification no.)
2231 East Camelback Road., Suite 410
Phoenix, Arizona 85016
(Address of principal executive
offices, including zip code)
(602) 852-3900
(Registrant's telephone number,
including area code)
Commission File Number: 1-7959
STARWOOD LODGING CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-1193298
(I.R.S. employer identification no.)
2231 East Camelback Road, Suite 400
Phoenix, Arizona 85016
(Address of principal executive
offices, including zip code)
(602) 852-3900
(Registrant's telephone number,
including area code)
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<PAGE> 2
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 10, 1997, Starwood Lodging Trust (the "Trust") and Starwood
Lodging Corporation (the "Corporation" and, together with the Trust, "Starwood
Lodging"), whose shares are paired and trade together as a unit (NYSE:HOT)
agreed to consummate the acquisition of HEI Hotels, L.L.C. ("HEI"), and a
portfolio of ten upscale hotels owned by HEI and PRISA II, an institutional real
estate investment fund managed by Prudential Real Estate Investors ("PREI"), for
aggregate consideration of limited partnership interests in Starwood Lodging
partnerships exchangeable for 6.5 million paired shares of the Trust and the
Corporation, as well as $112 million of cash from existing lines of credit and
debt assumption.
The portfolio consists of the 460-room Sheraton Hotel in Long Beach,
California, the 446-room Omni Waterside Hotel in Norfolk, Virginia, the 310-room
BWI Airport Marriott in Baltimore, Maryland, the 274-room Crown Plaza Edison, in
Edison, New Jersey, the 272-room Courtyard by Marriott Crystal City in
Arlington, Virginia, the 296-room Charleston Hilton in Charleston , South
Carolina, the 265-room Park Ridge Hotel in King of Prussia, Pennsylvania, the
245-room Sonoma County Hilton in Santa Rosa, California, the 239-room Novi
Hilton in Novi, Michigan, and the 233-suite Embassy Suites Hotel in Atlanta,
Georgia (collectively, the "HEI Owned Hotels"). The eight additional HEI-managed
hotels are the 418-room Sheraton Gateway Houston Airport in Houston, Texas, the
309-room Ontario Airport Hilton in Ontario, California, the 264-room Grand
Junction Hotel in Grand Junction, Colorado, the 242-room Danbury Hilton & Towers
in Danbury, Connecticut, the 208-room Residence Inn by Marriott in Princeton,
New Jersey, the 211-room Long Island Sheraton Hotel in Smithtown, New York, the
193-room Wilmington Hilton Hotel in Wilmington, Delaware, and the 160-room
Ramada Hotel Bethesda, in Bethesda, Maryland (collectively, the "HEI Managed
Hotels" and, together with the Owned Hotels and HEI, the "HEI Portfolio").
The HEI Portfolio acquisition is scheduled to be completed by February
18, but is subject to the satisfaction of certain conditions. No assurance can
be given that the pending acquisition will be completed.
This Current Report on Form 8-K contains statements which constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements include all statements that are
not strictly historical including statements regarding the intent, belief or
current expectations of Starwood Lodging, its Trustees, Directors or its
officers with respect to the consummation of, the acquisition described in this
Report. Investors are cautioned that any such forward-looking statements involve
risks and uncertainties, and that actual results may differ materially from
those in the forward-looking statements as a result of various factors,
including, without limitation, real estate conditions, execution of hotel
development programs, the purchase or development of a brand, completion of
pending acquisitions including the completion of customary due diligence and
closing conditions, changes in local or national economic conditions and other
risks and uncertanties relating to real estate investments and the financing
thereof, as more specifically described in the Starwood
<PAGE> 3
Lodging Current Report on Form 8-K dated May 16, 1996, and other filings with
the Securities and Exchange Commission.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses to be Acquired. See Index to
Financial Statements (page F -1).
(b) Pro Forma Financial Information. See Index to Financial Statements
(page F -1).
EXHIBITS.
23.1 Independent accountants consent
23.2 Independent accountants consent
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
By:____________________________ By:___________________________________
Ronald C. Brown Alan M. Schnaid
Senior Vice President and Vice President and Corporate Controller
Chief Financial Officer Principal Accounting Officer
Date: February 13, 1997
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STARWOOD LODGING TRUST AND STARWOOD LODGING
CORPORATION -- PRO FORMA
Combined and Separate Pro Forma Balance Sheets at September 30, 1996.................................... F-2
Notes to the Pro Forma Balance Sheets................................................................... F-5
Combined and Separate Pro Forma Statements of Operations for the twelve months ended September
30, 1996................................................................................................ F-8
Notes to Pro Forma Statements of Operations ............................................................ F-11
PRU-HEI HOTEL GROUP
Report of Independent Accountants....................................................................... F-14
Combined Balance Sheet as of January 2, 1997............................................................ F-15
Combined Statement of Operations for the Fifty-Three Week Period Ended January 2, 1997.................. F-16
Combined Statement of Changes in Owners' Capital........................................................ F-17
Combined Statement of Cash Flows for the Fifty-Three Week Period Ended January 2, 1997.................. F-18
Notes to Combined Financial Statements.................................................................. F-19
WESTPORT HOLDINGS, L.L.C.
Report of Independent Public Accountants................................................................ F-26
Consolidated Balance Sheet as of January 2, 1997........................................................ F-27
Consolidated Statement of Operations For the Year Ended January 2, 1997................................. F-28
Consolidated Statement of Changes in Members' Capital................................................... F-29
Consolidated Statement of Cash Flows For the Year Ended January 2, 1997................................. F-30
Notes to Consolidated Financial Statements.............................................................. F-31
</TABLE>
F-1
<PAGE> 6
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
Starwood Starwood
Lodging HEI Pro Forma Lodging
Combined Portfolio Adjustments Combined
--------------- --------------- --------------- ---------------
(A)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale - net $ 32,921,000 $ 32,921,000
Hotel assets - net 968,781,000 312,000,000 (B) -- 1,280,781,000
--------------- --------------- --------------- ---------------
1,001,702,000 312,000,000 -- 1,313,702,000
Mortgage notes receivable, net 72,446,000 -- 72,446,000
Investments in joint ventures 48,934,000 48,934,000
--------------- --------------- --------------- ---------------
Total real estate investments 1,123,082,000 312,000,000 -- 1,435,082,000
Cash and cash equivalents 31,298,000 31,298,000
Accounts and interest receivable 40,724,000 40,724,000
Notes receivable, net 2,916,000 2,916,000
Inventories, prepaid expenses and other assets 16,292,000 15,000,000 (C) 31,292,000
--------------- --------------- --------------- ---------------
$ 1,214,312,000 $ 327,000,000 $ -- $ 1,541,312,000
=============== =============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving
line of credit $ 423,709,000 $ 112,024,000 (D) 535,733,000
Mortgage and other notes payable 1,582,000 1,582,000
Accounts payable and other liabilities 43,223,000 43,223,000
Dividends and distributions payable 15,990,000 15,990,000
--------------- --------------- --------------- ---------------
484,504,000 112,024,000 -- 596,528,000
--------------- --------------- --------------- ---------------
Commitments and contingencies
MINORITY INTEREST 134,022,000 214,976,000 (F) (84,458,000) (H) 264,540,000 (E)
--------------- --------------- --------------- ---------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
26,636,000 shares 266,000 266,000
Corporation common stock, $0.01 par
value; authorized 100,000,000 shares;
outstanding 26,636,000 shares 266,000 84,458,000 (H) 266,000
Additional paid-in capital 863,487,000 947,945,000
Accumulated deficit (268,233,000) (268,233,000)
--------------- --------------- --------------- ---------------
595,786,000 84,458,000 680,244,000
--------------- --------------- --------------- ---------------
$ 1,214,312,000 $ 327,000,000 $ -- $ 1,541,312,000
=============== =============== =============== ===============
</TABLE>
F-2
<PAGE> 7
STARWOOD LODGING TRUST
UNAUDITED SEPARATE PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
Starwood Starwood
Lodging HEI Pro Forma Lodging
Trust Portfolio Adjustments Trust
--------------- --------------- --------------- ---------------
(A)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale - net $ 29,381,000 $ 29,381,000
Hotel assets - net 858,088,000 312,000,000 (B) 1,170,088,000
--------------- --------------- --------------- ---------------
887,469,000 312,000,000 -- 1,199,469,000
Mortgage notes receivable, net 72,446,000 72,446,000
Mortgage notes receivable - Corporation 87,884,000 87,884,000
Investments in joint ventures 47,482,000 47,482,000
--------------- --------------- --------------- ---------------
Total real estate investments 1,095,281,000 312,000,000 -- 1,407,281,000
Cash and cash equivalents 12,852,000 12,852,000
Rent and interest receivable 9,203,000 9,203,000
Notes receivable - Corporation 2,239,000 4,251,000 (G) -- 6,490,000
Notes receivable - net 11,162,000 11,162,000
Prepaid expenses and other assets 9,117,000 -- 9,117,000
--------------- --------------- --------------- ---------------
$ 1,139,854,000 $ 316,251,000 $ -- $ 1,456,105,000
=============== =============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving
line of credit $ 423,709,000 $ 112,024,000 (D) 535,733,000
Mortgage and other notes payable -- --
Accounts payable and other liabilities 7,125,000 7,125,000
Dividends and distributions payable 15,990,000 15,990,000
--------------- --------------- --------------- ---------------
446,824,000 112,024,000 -- 558,848,000
--------------- --------------- --------------- ---------------
Commitments and contingencies
MINORITY INTEREST 127,268,000 204,227,000 (F) (77,253,000)(H) 254,242,000 (E)
--------------- --------------- --------------- ---------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
26,636,000 shares 266,000 266,000
Additional paid-in capital 762,610,000 77,253,000 (H) 839,863,000
Accumulated deficit (197,114,000) (197,114,000)
--------------- --------------- --------------- ---------------
565,762,000 77,253,000 643,015,000
--------------- --------------- --------------- ---------------
$ 1,139,854,000 $ 316,251,000 $ -- $ 1,456,105,000
=============== =============== =============== ===============
</TABLE>
F-3
<PAGE> 8
STARWOOD LODGING CORPORATION
UNAUDITED SEPARATE PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
Starwood Starwood
Lodging HEI Pro Forma Lodging
Corporation Portfolio Adjustments Corporation
------------- ------------- ------------- -------------
(A)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale - net $ 3,540,000 $ 3,540,000
Hotel assets - net 110,693,000 -- 110,693,000
------------- ------------- ------------- -------------
114,233,000 -- -- 114,233,000
Investments in joint ventures 1,452,000 1,452,000
------------- ------------- ------------- -------------
Total real estate investments 115,685,000 -- -- 115,685,000
Cash and cash equivalents 18,446,000 18,446,000
Accounts and interest receivable 31,521,000 31,521,000
Notes receivable, net 677,000 677,000
Inventories, prepaid expenses and other assets 7,175,000 15,000,000 (C) 22,175,000
------------- ------------- ------------- -------------
$ 173,504,000 $ 15,000,000 $ -- $ 188,504,000
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and other notes payable $ 1,582,000 1,582,000
Mortgage notes payable - Trust 87,884,000 4,251,000(G) 92,135,000
Notes payable - Trust 11,162,000 -- 11,162,000
Accounts payable and other liabilities 36,098,000 36,098,000
------------- ------------- ------------- -------------
136,726,000 4,251,000 -- 140,977,000
------------- ------------- ------------- -------------
Commitments and contingencies
MINORITY INTEREST 6,754,000 10,749,000(F) (7,205,000(H) 10,298,000 (E)
------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY
Corporation common stock, $0.01 par
value; authorized 100,000,000 shares;
outstanding 26,636,000 shares 266,000 266,000
Additional paid-in capital 100,877,000 7,205,000(H) 108,082,000
Accumulated deficit (71,119,000) (71,119,000)
------------- ------------- ------------- -------------
30,024,000 7,205,000 37,229,000
------------- ------------- ------------- -------------
$ 173,504,000 $ 15,000,000 $ -- $ 188,504,000
============= ============= ============= =============
</TABLE>
F-4
<PAGE> 9
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED AND
SEPARATE PRO FORMA BALANCE SHEETS
AT SEPTEMBER 30, 1996
NOTE 1. BASIS OF PRESENTATION
(A) The Trust and the Corporation have unilateral control of SLT Realty
Limited Partnership ("Realty") and SLC Operating Limited Partnership
("Operating" and, together with Realty the "Partnerships"),
respectively, and therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation. Unless the context otherwise requires, all references
herein to the "Company" refer to the Trust and the Corporation, and all
references to the "Trust" and the "Corporation" include the Trust and
the Corporation and those entities respectively owned or controlled by
the Trust or the Corporation, including Realty and Operating.
NOTE 2. ACQUIRED PROPERTIES
(B) On February 10, 1997 the Company agreed to consummate the acquisition
of ten hotel properties containing 3,040 upscale hotel rooms (the "HEI
Owned Hotels") from HEI and PREI. The HEI Owned Hotels include:
<TABLE>
<CAPTION>
NAME CITY STATE TOTAL ROOMS
- ---- ---- ----- -----------
<S> <C> <C> <C>
Sheraton Hotel Long Beach CA 460
Omni Waterside Hotel Norfolk VA 446
BWI Airport Marriott Baltimore MD 310
Crown Plaza Edison Edison NJ 274
Courtyard by Marriott Crystal City Arlington VA 272
Charleston Hilton Charleston SC 296
Park Ridge Hotel King of Prussia PA 265
Sonoma County Hilton Santa Rosa CA 245
Novi Hilton Novi MI 239
Embassy Suites Hotel Atlanta GA 233
</TABLE>
F-5
<PAGE> 10
NOTE 3. ACQUIRED MANAGEMENT COMPANY
(C) On February 10, 1997 the Company agreed to consummate the acquisition
of HEI and its 18 management contracts. The 18 management contracts
relate to the ten HEI Owned Hotels, and eight hotels managed by HEI
consisting of 2,005 rooms ( the "HEI Managed Hotels"). The HEI Managed
Hotels contracts have expiration dates ranging from 2001 to 2016. The
Company intends to allocate $15 million of the total purchase price to
the management company. In addition to the HEI Owned Hotels, the HEI
Managed Hotels consist of:
<TABLE>
<CAPTION>
NAME CITY STATE TOTAL ROOMS
- ---- ---- ----- -----------
<S> <C> <C> <C>
Sheraton Gateway Houston Airport Houston TX 418
Ontario Airport Hilton Ontario CA 309
Grand Junction Hilton Grand Junction CO 264
Danbury Hilton & Towers Danbury CT 242
Residence Inn by Marriott Princeton NJ 208
Long Island Sheraton Hotel Smithtown NY 211
Wilmington Hilton Hotel Wilmington DE 193
Ramada Hotel Bethesda Bethesda MD 160
</TABLE>
(D) Represents the $112 million cash and assumed debt portion of the
consideration for the HEI Owned Hotels and HEI (together the "HEI
Portfolio").
(E) Represents minority interest of 28% after issuance of the 6,507,500
Paired Units (exchangeable into Paired Shares)
(F) Represents the issuance of 6,507,500 Paired Units (exchangeable into
Paired Shares) as part of the consideration for the HEI Portfolio.
At the time of the agreement in principle, the Paired Share had a
market value of $32.83 (as adjusted for the three-for-two stock split
on January 27, 1997).
(G) Reflects the amount owed to the Trust from the Corporation for the
purchase of the management contracts.
(H) Pro forma adjustments reflect the adjustment necessary to attain the
minority interest of 28% indicated in Note E.
F-6
<PAGE> 11
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED AND
SEPARATE STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
The following Unaudited Combined and Separate Pro Forma Statement of
Operations for the twelve months ended September 30, 1996 gives effect to the
HEI Portfolio as of the beginning of the period. The pro forma information is
based upon historical information and does not purport to present what actual
results would have been had such transactions, in fact, occurred at the
beginning of each period presented, or to project results for any future period.
Historical Starwood Lodging Trust and Starwood Lodging Corporation results are
for the period October 1, 1995 through September 30, 1996 and historical HEI
results are for the period January 1, 1996 through January 2, 1997.
Historical Starwood Lodging Trust and Starwood Lodging Corporation
results include the results of the properties acquired in 1995 (the Terrace
Garden and Lenox Inn in Atlanta, Georgia - acquired on October 31, and the
Holiday Inn in Beltsville, Maryland - acquired on November 30) and the
properties acquired in 1996 (the Westin in Washington, D.C. - acquired on
January 4, a 58.2% interest in the Boston Park Plaza in Boston, Massachusetts -
acquired on January 24, the Doubletree Guest Suites DFW Airport in Irving,
Texas, the Doubletree Guest Suites in Ft. Lauderdale, Florida and the Westin
Hotel in Tampa, Florida - all three acquired on April 26, the Midland Hotel in
Chicago, Illinois - acquired on March 27, the Clarion Hotel in San Francisco,
California - acquired on April 25, the Doubletree Guest Suites in Philadelphia,
Pennsylvania - acquired on June 1, the Days Inn in Philadelphia, Pennsylvania -
acquired on June 28, the Teachers Portfolio consisting of the Ritz Carlton in
Kansas City, Missouri, the Ritz Carlton in Philadelphia, Pennsylvania, the
Westin Hotel in Waltham, Massachusetts, the Westin LAX in Los Angeles,
California, the Westin Horton Plaza in San Diego, California, the Westin Hotel
Concourse in Atlanta, Georgia, the Doubletree Grand at Mall of America in
Bloomington, Minnesota and the Wyndham Hotel in Ft. Lauderdale, Florida -
acquired on August 12, the HOD Portfolio consisting of the Hotel Park Tucson
in Tucson, Arizona, the Embassy Suites in Palm Desert, California, the Marque
in Atlanta, Georgia, the Arlington Park Hilton in Arlington Heights, Illinois,
the Sheraton Needham in Needham, Massachusetts, the Sheraton Minneapolis
Metrodome in Minneapolis, Minnesota, the Embassy Suites in St. Louis, Missouri,
the Radisson Marque in Winston-Salem, North Carolina and the Allentown Hilton
in Allentown, Pennsylvania - acquired on August 16, the Princeton Marriott in
Princeton, New Jersey acquired on August 29, and the Doral Court and Doral
Tuscany both in New York, New York - acquired on September 19) from their
respective dates of acquisition.
F-7
<PAGE> 12
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Historical For The Year Ended December 31, 1996
Starwood -------------------------------------------
Lodging HEI Owned Pro Forma
Combined Hotels HEI Adjustments
------------ ----------- ---------- -------------
(A)
<S> <C> <C> <C> <C>
REVENUE
Hotel .................................................. $242,378,000 $93,751,000(B) $ -- $13,557,000 (B)(I)
Gaming ................................................. 25,890,000
Interest from mortgage and other notes ................. 10,505,000
Income from joint ventures and
rents from leased hotel properties ................... 3,728,000 (286,000)(D) 286,000 (D)
Management fees and other income ....................... 3,193,000 154,000(C) 5,711,000 (E) (2,813,000)(J)
Loss on sales of hotel assets .......................... (1,384,000)
------------ ----------- ---------- -------------
284,310,000 93,905,000 5,425,000 1,030,000
------------ ----------- ---------- -------------
EXPENSES
Hotel operations ....................................... 168,372,000 70,239,000(B) -- 9,419,000 (B)(I)
(2,813,000)(B)(J)
Gaming operations ...................................... 23,707,000
Interest ............................................... 15,628,000 8,178,000 (K)
Depreciation and amortization .......................... 32,660,000 25,870,000 (L)(M)
Administrative and operating ........................... 11,885,000 4,258,000 (F) (1,207,000)(N)
------------ ----------- ---------- -------------
252,252,000 70,239,000 4,258,000 39,447,000
------------ ----------- ---------- -------------
Income (loss) before minority interest in Partnerships . 32,058,000 $23,666,000 $1,167,000 $ (28,417,000)
=========== ========== =============
Minority interest in Partnerships ...................... 9,173,000(O)
------------
Net income ............................................. $ 22,885,000
============
Net income per share (Q) ............................... $ 0.94
============
Weighted average shares outstanding .................... 24,277,000
============
<CAPTION>
Pro Forma
Starwood
Lodging
Combined
------------
<S> <C>
REVENUE
Hotel .................................................. $349,686,000
Gaming ................................................. 25,890,000
Interest from mortgage and other notes ................. 10,505,000
Income from joint ventures and
rents from leased hotel properties ................... 3,728,000
Management fees and other income ....................... 6,245,000
Loss on sales of hotel assets .......................... (1,384,000)
------------
394,670,000
------------
EXPENSES
Hotel operations ....................................... 245,217,000
Gaming operations ...................................... 23,707,000
Interest ............................................... 23,806,000
Depreciation and amortization .......................... 58,530,000
Administrative and operating ........................... 14,936,000
------------
366,196,000
------------
Income (loss) before minority interest in Partnerships . 28,474,000
Minority interest in Partnerships ...................... 11,093,000 (O)(P)
------------
Net income ............................................. 17,381,000
============
Net income per share (Q) ............................... $ 0.72
============
Weighted average shares outstanding .................... 24,277,000
============
</TABLE>
F-8
<PAGE> 13
STARWOOD LODGING TRUST
UNAUDITED SEPARATE PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Historical For The Year Ended December 31, 1996 Pro Forma
Starwood ----------------------------------------------- Starwood
Lodging HEI Owned Pro Forma Lodging
Trust Hotels HEI Adjustments Trust
------------- ------------- ------------- ------------- -------------
(A)
<S> <C> <C> <C> <C> <C>
REVENUE
Rents from Corporation ....................... $ 55,464,000 $ 28,940,000(G) $ 84,404,000
Interest from Corporation .................... 8,090,000 478,000(H) 8,568,000
Interest from mortgage and other notes ....... 10,525,000 10,525,000
Income from joint ventures and
rents from leased hotel properties ......... 2,360,000 2,360,000
Other ........................................ 1,991,000 1,991,000
Loss on sale ................................. (1,384,000) (1,384,000)
------------- ------------- ------------- ------------- -------------
77,046,000 29,418,000 106,464,000
------------- ------------- ------------- ------------- -------------
EXPENSES
Interest ..................................... 15,355,000 8,178,000(K) 23,533,000
Depreciation and amortization ................ 21,339,000 25,120,000(L) 46,459,000
Administrative and operating ................. 4,147,000 4,147,000
------------- ------------- ------------- ------------- -------------
40,841,000 33,298,000 74,139,000
------------- ------------- ------------- ------------- -------------
Income before minority interest in
Partnerships 36,205,000 $ -- $ -- $ (3,880,000) 32,325,000
============= ============= =============
Minority interest in Partnerships ............ 9,837,000(O) 12,593,000(O)(P)
------------- -------------
Net income ................................... $ 26,368,000 $ 19,732,000
============= =============
Net income per share (Q) ..................... $ 1.09 $ 0.81
============= =============
</TABLE>
F-9
<PAGE> 14
STARWOOD LODGING CORPORATION
UNAUDITED SEPARATE PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Historical For The Year Ended December 31, 1996
Starwood --------------------------------------------------
Lodging HEI Owned Pro Forma
Corporation Hotels HEI Adjustments
------------- ------------- ------------- -------------
(A)
<S> <C> <C> <C> <C>
REVENUE
Hotel ................................................ $ 242,378,000 $ 93,751,000 (B) 13,557,000 (B)(I)
Gaming ............................................... 25,890,000
Income from joint venture ............................ 1,368,000 (286,000)(D) 286,000 (D)
Interest from notes receivable ....................... 81,000
Management fees and other income ..................... 1,101,000 154,000 (C) 5,711,000 (E) (2,813,000)(J)
------------- ------------- ------------- -------------
270,818,000 93,905,000 5,425,000 11,030,000
------------- ------------- ------------- -------------
EXPENSES
Hotel operations ..................................... 168,372,000 70,239,000 (B) 9,419,000 (B)(I)
(2,813,000)(B)(J)
Gaming operations .................................... 23,707,000
Rent - Trust ......................................... 55,464,000 28,940,000 (G)
Interest - Trust ..................................... 8,090,000 478,000 (H)
Interest ............................................. 273,000
Depreciation and amortization ........................ 11,321,000 750,000 (M)
Administrative and operating ......................... 7,738,000 4,258,000 (F) (1,207,000)(N)
------------- ------------- ------------- -------------
274,965,000 70,239,000 4,258,000 35,567,000
------------- ------------- ------------- -------------
Income (loss) before minority interest in
Partnerships (4,147,000) $ 23,666,000 $ 1,167,000 $ (24,537,000)
============= ============= =============
Minority interest in Partnerships .................... (664,000)(O)
-------------
Net income (loss) .................................... $ (3,483,000)
=============
Net income (loss) per share (Q) ...................... $ (0.14)
=============
<CAPTION>
Pro Forma
Starwood
Lodging
Corporation
-------------
<S> <C>
REVENUE
Hotel ................................................ $ 349,686,000
Gaming ............................................... 25,890,000
Income from joint venture ............................ 1,368,000
Interest from notes receivable ....................... 81,000
Management fees and other income ..................... 4,153,000
-------------
381,178,000
-------------
EXPENSES
Hotel operations ..................................... 245,217,000
Gaming operations .................................... 23,707,000
Rent - Trust ......................................... 84,404,000
Interest - Trust ..................................... 8,568,000
Interest ............................................. 273,000
Depreciation and amortization ........................ 12,071,000
Administrative and operating ......................... 10,789,000
-------------
385,029,000
-------------
Income (loss) before minority interest in Partnerships (3,851,000)
Minority interest in Partnerships .................... (1,500,000)(O)(P)
-------------
Net income (loss) .................................... (2,351,000)
=============
Net income (loss) per share (Q) ...................... $ (0.10)
=============
</TABLE>
F-10
<PAGE> 15
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED AND
SEPARATE PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of SLT Realty
Limited Partnership ("Realty") and SLC Operating Limited Partnership
("Operating" and, together with Realty the "Partnerships"),
respectively, and therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation. Unless the context otherwise requires, all references
herein to the "Company" refer to the Trust and the Corporation, and all
references to the "Trust" and the "Corporation" include the Trust and
the Corporation and those entities respectively owned or controlled by
the Trust or the Corporation, including Realty and Operating.
NOTE 2. PRO FORMA ADJUSTMENTS
(A) Reflects the historical statements of operations of the
Company. Operations for properties sold or pending sale are
not considered material to the pro forma presentation.
(B) Reflects the pro forma statements of operations in the HEI
Portfolio.
Listed below are the effects each acquired hotel had on the
Combined Pro Forma Statement of Operations for the twelve
months ended September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
HOTEL REVENUES EXPENSES EBITDA
- --------------------------------------- ---------- ---------- --------
<S> <C> <C> <C>
Sheraton Hotel 15,604 12,353 3,251
Omni Waterside Hotel 12,583 8,236 4,347
BWI Airport Marriott 14,993 10,074 4,919
Crown Plaza Edison 8,653 6,850 1,803
Courtyard by Marriott Crystal City 8,547 4,842 3,705
Charleston Hilton 8,022 6,260 1,762
Park Ridge Hotel 11,925 8,388 3,537
Sonoma County Hilton 7,130 6,245 885
Novi Hilton 11,126 7,747 3,379
Embassy Suites Hotel 8,725 5,850 2,875
---------- ---------- --------
TOTALS 107,308 76,845 30,463
========== ========== ========
</TABLE>
F-11
<PAGE> 16
Additional information related to the HEI Owned Hotels is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
ADR ($) Occupancy % REVPAR ($)
-------------------------- -------------------------- ---------------------------
Hotel 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sheraton Hotel 85.61 80.84 76.37 63.0 62.8 62.3 53.91 50.77 47.58
Omni Waterside Hotel 81.93 76.59 73.40 63.5 62.1 62.6 52.02 47.58 45.95
BWI Airport Marriott 101.59 96.53 88.72 77.1 74.7 75.9 78.35 72.10 67.34
Crown Plaza Edison 77.87 75.47 67.63 69.9 62.6 67.0 54.46 47.27 45.31
Courtyard by Marriott Crystal City 102.00 98.55 96.08 68.6 68.5 69.3 69.97 67.47 66.61
Charleston Hilton 78.89 75.76 69.62 59.6 74.8 79.6 47.02 56.67 55.42
Park Ridge Hotel 94.68 93.21 89.23 70.0 64.3 60.3 66.31 59.95 53.80
Sonoma County Hilton 73.96 72.36 68.49 71.8 68.9 63.7 53.07 49.86 43.63
Novi Hilton 88.98 79.73 74.93 70.3 72.6 71.6 62.56 57.90 53.65
Embassy Suites Hotel 110.74 95.30 92.98 70.0 72.0 73.1 77.50 68.60 67.98
</TABLE>
(C) Reflects historical interest earned on cash accounts at the
HEI owned hotels.
(D) Reflects loss allocated to HEI from affiliated partnerships.
(E) Reflects management fees earned by HEI on the HEI owned hotels
and the HEI managed hotels.
(F) Reflects administrative and operating expenses of HEI for the
year ended December 31, 1996.
(G) Reflects pro forma adjustment for rents on the HEI owned
hotels. The hotel leases between the Trust and the Corporation
provide for annual base or minimum rents plus contingent or
percentage rents based on the gross revenue of the properties
and are accounted for as operating leases.
(H) Reflects interest on the unsecured note payable from the
Corporation to the Trust for the purchase, by the Corporation,
of HEI and HEI's management contracts. Interest on unsecured
note is calculated based on Prime + 3%.
(I) Reflects pro forma adjustments for the Courtyard by Marriott
Crystal City and the Sonoma County Hilton which were acquired
by HEI during the fourth quarter of 1996.
(J) Reflects management fees earned by HEI on the HEI owned
hotels.
F-12
<PAGE> 17
(K) Reflects the addition of interest expense at 7.3% on the $112 million
pro forma debt assuming draw down to acquire the properties as of
October 1, 1995.
(L) Reflects depreciation expense on the HEI owned hotels.
(M) Reflects amortization of the management contracts underlying the HEI
Managed Hotels.
(N) Pro forma administrative and operating expenses reflect decreases in
operating expenses resulting from a decrease in costs as follows:
<TABLE>
<S> <C>
Reduction in legal and accounting fees...................... 30,000
Reduction in nonrecurring salaries and bonuses.............. 1,076,000
Reduction in dead deal expenses............................. 80,000
Reduction in interest expense............................... 21,000
----------
TOTAL $1,207,000
==========
</TABLE>
(O) Reflects Starwood Capital's and other partners' minority interests in
the income of the Partnerships.
(P) Reflects minority interest in the income of the partnerships on the
partnership units issued in the HEI Portfolio.
(Q) Net income (loss) per paired share has been computed using the weighted
average number of paired shares and equivalent paired shares
outstanding. All paired share information has been adjusted to reflect
a 3-for-2 stock split effective January 27, 1997.
F-13
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners and Members of the
Pru-HEI Hotel Group
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, of owners' capital and of cash flows present fairly,
in all material respects, the financial position of Pru-HEI Hotel Group (not a
legal entity, see Note 1) at January 2, 1997 and the results of its operations
and its cash flows for the fifty-three week period ended January 2, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Pru-HEI Hotel Group's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-14
<PAGE> 19
PRU-HEI HOTEL GROUP
COMBINED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 2, 1997
<S> <C>
ASSETS
Hotel property and equipment, at cost
Land $ 22,239,282
Building and improvements 147,348,076
Furniture, fixtures and equipment 26,924,333
-------------
196,511,691
Less - Accumulated depreciation (17,127,279)
-------------
NET INVESTMENT IN HOTEL PROPERTY AND EQUIPMENT 179,384,412
-------------
Cash and cash equivalents 5,791,198
Restricted cash 4,559,584
Accounts receivable, net of allowance for doubtful
accounts of $92,292 3,953,894
Inventories 2,162,590
Prepaid expenses, deferred charges and other assets 1,694,264
-------------
TOTAL ASSETS $ 197,545,942
=============
LIABILITIES AND OWNERS' CAPITAL
Mortgage loans payable $ 25,194,470
Accounts payable and accrued expenses 8,888,271
-------------
TOTAL LIABILITIES 34,082,741
-------------
Commitments and contingent liabilities
Owners' capital 163,463,201
-------------
TOTAL LIABILITIES AND OWNERS' CAPITAL $ 197,545,942
=============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-15
<PAGE> 20
PRU-HEI HOTEL GROUP
COMBINED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FIFTY-THREE
WEEK PERIOD ENDED
JANUARY 2, 1997
<S> <C>
Revenues
Room $ 57,746,092
Food and beverage 31,462,366
Other 4,542,560
------------
TOTAL REVENUES 93,751,018
------------
Cost of sales - distributed operating expenses
Room 14,113,819
Food and beverage 23,028,139
Other 2,248,169
------------
TOTAL COST OF SALES - DISTRIBUTED OPERATING EXPENSES 39,390,127
------------
Undistributed operating expenses
General and administrative 8,183,151
Advertising and promotions 5,374,322
Utilities 4,075,210
Repairs and maintenance 4,323,475
------------
TOTAL UNDISTRIBUTED OPERATING EXPENSES 21,956,158
------------
Other expenses (income)
HEI management fees 2,812,669
Franchise fees 2,508,228
Real estate taxes and insurance 3,571,600
General and administrative 640,160
Depreciation 7,350,826
Amortization 129,432
Interest expense 2,061,754
Interest income (154,451)
------------
TOTAL OTHER EXPENSES (INCOME) 18,920,218
------------
NET INCOME $ 13,484,515
============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-16
<PAGE> 21
PRU-HEI HOTEL GROUP
COMBINED STATEMENT OF CHANGES IN OWNERS' CAPITAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRISA II HEI TOTAL
<S> <C> <C> <C>
Balance, as of December 28, 1995 $ 124,114,368 $ (2,689,141) $ 121,425,227
Contributions from owners 45,101,912 643,088 45,745,000
Net income 11,635,301 1,849,214 13,484,515
Distributions to owners (13,977,777) (3,213,764) (17,191,541)
------------- ------------- -------------
Balance, as of January 2, 1997 $ 166,873,804 $ (3,410,603) $ 163,463,201
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-17
<PAGE> 22
PRU-HEI HOTEL GROUP
COMBINED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FIFTY-THREE
WEEK PERIOD ENDED
JANUARY 2, 1997
<S> <C>
Cash flows from operating activities
Net income $ 13,484,515
------------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 7,350,826
Amortization 129,432
Changes in
Accounts receivable 974,809
Inventories (46,851)
Prepaid expenses, deferred charges and other assets (320,337)
Accounts payable and accrued liabilities 102,046
------------
TOTAL ADJUSTMENTS 8,189,925
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,674,440
------------
Cash flows from investing activities
Purchase of hotels (44,636,501)
Additions and improvements to hotel property and equipment
and other (5,346,046)
Increase in restricted cash 613,049
------------
NET CASH USED IN INVESTING ACTIVITIES (49,369,498)
Cash flows from financing activities
Contributions from partners 45,745,000
Distributions to partners (17,353,428)
Principal payments on mortgage loans payable (164,916)
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,226,656
------------
Net increase in cash and cash equivalents 531,598
------------
Cash and cash equivalents at December 28, 1995 5,259,600
------------
Cash and cash equivalents at January 2, 1997 $ 5,791,198
============
Supplemented disclosure of
Cash paid during the fiscal year for interest $ 2,009,615
============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-18
<PAGE> 23
PRU-HEI HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Pru-HEI Hotel Group (not a legal entity) is engaged in the
acquisition, ownership and operation of ten hotels (the "Hotels")
located in the United States. The Hotels are held in five limited
partnerships, four limited liability corporations and one joint venture
which are each owned by affiliates of HEI Hotels LLC ("HEI") and The
Prudential Insurance Company of America for the benefit of the
Prudential Property Investment Separate Account II ("PRISA II").
Hereafter, PRISA II and HEI are referred to collectively as the
"Owners". The Hotels are managed by HEI (Note 7).
On January 15, 1997, Starwood Lodging Trust and Starwood Lodging
Corporation (collectively "Starwood") entered into a contract to
purchase the Hotels, and the HEI hotel management company (the
"Transaction") for an aggregate purchase price of $327 million
comprised of limited partnership interests in Starwood partnerships
exchangeable for equity shares as well as $112 million of cash and debt
assumption.
BASIS OF PRESENTATION
The accompanying financial statements have been presented on a combined
basis because the Hotels are under common ownership and management.
The partnership, limited liability corporation and joint venture
agreements specify required capital contributions of the Owners and the
method of allocation of profits, losses, distributions and return of
capital to the partners. Pursuant to the terms of certain of the
partnership agreements or articles of incorporation, PRISA II annually
earns a preferred rate of return. Such returns vary by entity and
generally range between 9.50 and 10.50 percent of PRISA II's
undistributed initial capital contribution, as defined. During the
fifty three week period ended January 2, 1997, PRISA II earned
aggregate preferred returns totalling $9,783,750.
The following table sets forth additional information pertaining to the
partnerships, joint venture and limited liability corporations
including the name and location of the Hotels, the number of rooms and
the ownership interests of PRISA II and HEI after consideration of
PRISA II's preferred return.
F-19
<PAGE> 24
PRU-HEI HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF ENTITY/HOTEL GENERAL PARTNER INTERESTS LIMITED PARTNER INTERESTS
NAME/LOCATION/NUMBER OF ROOMS PRISA II HEI PRISA II HEI
-------- --- -------- ---
<S> <C> <C> <C> <C>
Partnerships:
Novi Hotel Associates Limited Partnership 1% 5% 39% 55%
Novi Hilton
Novi, Michigan: 239 rooms
Virginia Hotel Associates Limited Partnership 1% 5% 39% 55%
Omni Waterside Hotel
Norfolk, Virginia: 446 rooms
Edison Hotel Associates Limited Partnership 1% 5% 39% 55%
Crown Plaza Edison
Edison, New Jersey: 274 rooms
BW Hotel Realty Limited Partnership 1% 5% 39% 55%
BWI Airport Marriot
Baltimore, Maryland: 310 rooms
Park Ridge Hotel Associates, Limited Partnership -- 20% 80% --
Park Ridge Hotel
Valley Forge, Pennsylvania: 265 rooms
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP INTERESTS
<S> <C> <C>
Joint Venture: PRISA II HEI
-------- ---
Prudential - HEI Joint Venture 86.4% 13.6%
Embassy Suite Hotel
Atlanta, Georgia: 233 rooms
</TABLE>
<TABLE>
<CAPTION>
MEMBER INTERESTS
<S> <C> <C>
Limited Liability Corporation: PRISA II HEI
-------- ---
Long Beach Hotel Associates, L.L.C. 80.0% 20.0%
Sheraton Hotel
Long Beach, California: 460 rooms
Charleston Hotel Associates, L.L.C. 80.0% 20.0%
Charleston Hilton
Charleston, South Carolina: 296 rooms
Crystal City Hotel Associates, L.L.C. 80.0% 20.0%
Courtyard by Marriot Crystal City
Arlington, Virginia: 272 rooms
Santa Rosa Hotel Associates, L.L.C. 80.0% 20.0%
Sonoma County Hilton
Santa Rosa, California: 245 rooms
</TABLE>
The Pru-HEI Hotel's fiscal year for reporting results of operations,
cash flows and changes in owners' interests is the 52 or 53 week period
ending on the Thursday closest to December 31. Fiscal 1996 was a
fifty-three week period ending on January 2, 1997.
Courtyard by Marriot Crystal City and Sonoma County Hilton (the
"Acquired Hotels") were purchased from unrelated sellers on October 31,
1996 and October 24, 1996, respectively, for aggregate acquisition
costs of approximately $29 million and $16 million, respectively. The
Acquired Hotels were purchased with cash contributed by the Owners. The
combined financial statements only include the financial statements of
the Acquired Hotels for the portion of the fiscal year that the hotels
were owned by the Owners.
Certain other hotels jointly owned by PRISA II and HEI have been
excluded from these financial statements as they are excluded from the
Transaction.
F-20
<PAGE> 25
PRU-HEI HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months
or less when purchased are considered to be cash equivalents.
RESTRICTED CASH
Restricted cash represents cash restricted pursuant to the terms of the
management agreements and held in escrow for the purpose of renovating
and refurbishing the property and purchases of property and equipment
(Note 7).
INVENTORIES
Inventories, consisting primarily of room linen, china, glass,
silverware and food and beverage, are stated at the lower of cost or
market on a first-in first-out basis.
HOTEL PROPERTY AND EQUIPMENT
Hotel property and equipment are stated and cost and are depreciated on
a straight-line basis over the estimated useful lives of the related
assets, generally five to 39 years. The costs of repairs and minor
renewals that do not significantly extend the life of the building and
improvements are normally expensed as incurred. The costs of major
renovation projects are capitalized and depreciated over the related
period of benefit. The net investment in hotel property and equipment
does not exceed the fair value of the Hotels less estimated cost of
sales.
DEFERRED CHARGES
Deferred charges consist primarily of franchise fees, organization
costs and loan origination costs. Deferred charges are being amortized
over the term of the franchise agreements, five years, and the terms of
the loan agreements, respectively.
INCOME TAXES
No provision for income taxes is necessary in the accompanying
financial statements as the entities included in Pru-HEI Hotel Group
are not subject to federal and state income taxes and the tax effects
of their activities flow through to the Owners.
REVENUE RECOGNITION
Revenues are recognized when earned. An allowance for potential credit
losses is provided against the portion of accounts receivable that is
estimated to be uncollectible.
INTEREST EXPENSE
Interest is computed in accordance with the effective interest method.
F-21
<PAGE> 26
PRU-HEI HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
3. RESTRICTED CASH
Restricted cash includes amounts held in the property improvement fund
(Note 7).
4. MORTGAGE LOANS PAYABLE
The Novi Hotel Associates Limited Partnership ("Novi") is liable under
a mortgage note in the original principal amount of $8,200,000. The
mortgage note requires monthly payment of principal and interest. The
interest rate was 8 percent until July 1, 1996, 8.5 percent until July
1, 1997 and thereafter 4 percent above an index rate based on U.S.
Government Securities, until the loan matures on July 1, 2002.
The Virginia Hotel Associates Limited Partnership ("Virginia") is
liable under a mortgage note in the original principal amount of
$8,325,000. The mortgage note requires monthly payments of interest
based on scheduled increases in the interest rate, which range from 7.4
to 11 percent, until the loan matures on April 8, 2002 (8.5 percent at
January 2, 1997). For financial reporting purposes interest expense
approximates an interest rate of 8.96 percent, which is the
weighted-average interest rate over the term of the mortgage note.
After May 1, 1997, scheduled principal payments are required through
maturity on April 8, 2002.
The Edison Hotel Associates Limited Partnership ("Edison") is liable
under a mortgage note in the original principal amount of $8,925,000.
The mortgage bears interest at 7 percent and matures on March 10, 1999.
The mortgage note requires monthly payments of interest only until
April 1996 and monthly payments of principal and interest thereafter.
Required annual principal payments on the mortgage loans payable at
January 2, 1997 are as follows:
Year AMOUNT
1997 $ 257,173
1998 325,549
1999 8,749,582
2000 207,372
2001 215,419
Thereafter 15,439,375
---------------
$ 25,194,470
===============
F-22
<PAGE> 27
PRU-HEI HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In connection with the Transaction, management expects the mortgage
loans will be repaid in full at their then carrying value.
The real estate and the related property improvement fund (see Note 7)
of the aforementioned partnerships have been pledged as collateral for
the related mortgage notes.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses is comprised of the following:
Accounts payable - trade $ 2,051,484
Accrued wages and benefits 2,291,941
Unearned customer deposits 703,923
Sales taxes payable 533,167
Other accrued liabilities 3,307,756
------------
TOTAL ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 8,888,271
============
6. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash equivalents, receivables, accounts payable and accrued expenses
are carried at amounts which reasonably approximate their fair values.
Mortgage loans payable are carried amounts which approximate their fair
values based upon current interest rates for debt with similar terms
and remaining maturity.
7. COMMITMENTS AND CONTINGENT LIABILITIES
HOTEL MANAGEMENT
The hotels are managed by HEI Hotels, LLC pursuant to the terms of
operating agreements between them and the Owners. The management
agreements renew annually unless terminated in a manner specified by
the agreement. In accordance with the terms of the management
agreement, HEI receives base management fees equal to 3% of gross
revenues, as defined. Included in accounts payable and accrued expenses
are management fees of approximately $202,000 payable to HEI.
In conjunction with the management agreements, HEI provides group
medical benefits for all employees of the hotels that it manages
(including certain hotels not included in the Pru-HEI Hotel Group). The
medical benefits are self-insured up to a certain determined amount for
each occurrence and in aggregate. Costs in excess of these amounts are
covered by an umbrella insurance policy. Each hotel is charged an
amount equal to its actual costs up to the self-insured amount and a
portion of the insurance premiums based on the number of employees at
the hotel as a percentage of all employees covered. During the year,
the PruHEI Hotel Group incurred an aggregate amount of approximately
$2,017,000 for this coverage of which approximately $528,000 is
included in accounts payable and accrued expenses.
All employees of the Hotels who meet certain minimum age and period of
service requirements are eligible to participate in a Section 401(k)
plan (the "Plan") as defined by
F-23
<PAGE> 28
PRU-HEI HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the Internal Revenue Code. The Plan allows eligible employees to defer
amounts ranging from 2 to 15 percent of their annual compensation. The
amounts contributed by employees are immediately vested and
non-forfeitable. The Hotels will match amounts contributed by employees
on a dollar for dollar basis up to 2 percent of their salary and 25
cents per dollar for amounts from 3 to 6 percent on an annual basis.
The Hotels contributed an aggregate of $187,787 during the year.
FRANCHISE FEES
Franchise fees represent the annual expense for franchise royalties
calculated as a percentage of gross room revenues under the terms of
separate hotel franchise agreements with several hotel chain
franchises. Franchise fee percentages range from 2 to 6 percent and in
certain instances are based on increasing scales over time. The Pru-HEI
Hotel Group paid an aggregate amount of $2,508,000 in franchise fees
for the fiscal year ended January 2, 1997. Additionally, the PruHEI
Hotel Group paid aggregate amount of $1,021,000 representing
franchisors fees for additional services including marketing and
central reservations. These additional fees are included as advertising
and promotions in the accompanying combined statement of operations.
PROPERTY IMPROVEMENT FUND
The aforementioned mortgage notes and management agreements require the
contribution of amounts ranging from 3 to 5 percent of gross revenues
to a property improvement fund. The funds are held in escrow to be used
solely for renovation and refurbishment of the property and the
purchase of property and equipment. The required contribution in fiscal
1996 aggregated approximately $3.5 million.
8. ADDITIONAL INFORMATION - ACQUIRED HOTELS
COURTYARD BY MARRIOT CRYSTAL CITY
The following schedule summarizes the revenues and certain expenses of
the Courtyard by Marriot Crystal City for the period from January 1,
1996 through October 31, 1996, the date of acquisition by Pru-HEI
Hotels. The schedule excludes certain expenses not comparable to the
period subsequent to their acquisition by the Pru-HEI Hotel Group.
Expenses excluded consist of valuation adjustments to the building and
improvements, interest expense on certain debt incurred by the previous
owners and amortization of expenses not directly related to the
operations of the property.
F-24
<PAGE> 29
PRU-HEI HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
REVENUES
Room $6,233,247
Food and beverage 902,947
Other 391,380
----------
7,527,574
----------
CERTAIN EXPENSES
Operating costs and expenses 2,039,264
General and administrative 556,066
Advertising and promotion 308,095
Utilities 268,121
Repairs and maintenance 273,936
Related party management fees 113,150
Franchise fees 309,927
Property taxes and insurance 252,719
Other expenses 88,112
----------
4,209,398
----------
REVENUE IN EXCESS OF CERTAIN EXPENSES $3,318,184
==========
</TABLE>
During the period from January 1, 1996 through October 31, 1996, the
property incurred $181,080 of capital additions and recorded $805,632
of depreciation charges.
SONOMA COUNTY HILTON
The schedule of revenue and certain expenses for the Sonoma County
Hilton for the period from January 1, 1996 through October 24, 1996,
the date of acquisition by Pru-HEI Hotel Group, were not made available
for audit by the previous owner and have thus been excluded from these
combined financial statements.
F-25
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Boards of Directors
of Westport Holdings, L.L.C.:
We have audited the accompanying consolidated balance sheet of Westport
Holdings, L.L.C., as of January 2, 1997, and the related consolidated statements
of operations, changes in members' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Westport Holdings,
L.L.C., as of January 2, 1997, and the consolidated results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Coopers and Lybrand L.L.P.
New York, NY
February 6, 1997.
F-26
<PAGE> 31
WESTPORT HOLDINGS, L.L.C.
CONSOLIDATED BALANCE SHEET
January 2, 1997
<TABLE>
<S> <C>
ASSETS:
Current assets:
Cash and cash equivalents $1,095,572
Accounts receivable 798,696
Prepaid expenses and other 216,062
----------
Total current assets 2,110,330
----------
Property and equipment:
Furniture, fixtures, and equipment 432,655
Leasehold improvements 410,537
----------
843,192
Less, Accumulated depreciation (225,147)
----------
Net investment in property and equipment 618,045
----------
Restricted cash (Note 3) 117,680
Investments in affiliates (Note 4) 1,477,098
Other assets 156,303
----------
Total assets $4,479,456
----------
LIABILITIES AND MEMBERS' CAPITAL:
Current liabilities:
Accounts payable $ 808,886
Note payable to bank (Notes 5 and 6) 437,500
Deferred compensation (Notes 3 and 6) 1,146,170
----------
Total current liabilities 2,392,556
Commitments (Note 3)
Members' capital 2,086,900
----------
Total liabilities and members' capital $4,479,456
==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-27
<PAGE> 32
WESTPORT HOLDINGS, L.L.C.
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended January 2, 1997
<TABLE>
<S> <C>
Revenues (Note 3):
Hotel management fees $ 4,477,997
Asset management fees 350,908
Other fees 882,020
-----------
Total revenues 5,710,925
-----------
Expenses:
Payroll 2,413,240
General and administrative 765,764
Depreciation and amortization 45,557
-----------
Total expenses 3,224,561
-----------
Operating income 2,486,364
Deferred compensation (Note 3) (1,076,170)
Interest expense, net of interest income of $18,318 (3,551)
Equity in loss from investment in affiliates (Note 4) (286,077)
-----------
Net income $ 1,120,566
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-28
<PAGE> 33
WESTPORT HOLDINGS, L.L.C.
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' CAPITAL
<TABLE>
<CAPTION>
WESTPORT WESTPORT
HOSPITALITY, MANAGEMENT,
INC. L.L.C. SAVIOR L.P. TOTAL
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, December 29, 1995 $ 51,769 $ 570,032 $414,533 $1,036,334
Special distribution to member -- (70,000) -- (70,000)
Net income 64,890 714,584 341,092 1,120,566
-------- ---------- -------- ----------
Balance, January 2, 1997 $116,659 $1,214,616 $755,625 $2,086,900
======== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-29
<PAGE> 34
WESTPORT HOLDINGS, L.L.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended January 2, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 1,120,566
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 45,557
Equity in loss from investment in affiliates 286,077
Deferred compensation 1,076,170
Changes in operating assets and liabilities:
Accounts receivable (468,252)
Prepaid expenses and other assets (281,710)
Accounts payable and accrued liabilities 464,191
-----------
Net cash provided by operating activities 2,242,599
-----------
Cash flows used in investing activities:
Purchase of property and equipment (627,630)
Investment in affiliates (1,157,853)
Restricted cash (117,680)
-----------
Net cash used in investing activities (1,903,163)
-----------
Cash flows provided by financing activities:
Distribution to member (70,000)
Proceeds from note payable 500,000
Principal payments of note payable (62,500)
-----------
Net cash provided by financing activities 367,500
-----------
Net increase in cash and cash equivalents 706,936
Cash and cash equivalents, beginning of year 388,636
-----------
Cash and cash equivalents, end of year $ 1,095,572
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-30
<PAGE> 35
WESTPORT HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Westport Holdings, L.L.C., is a Delaware limited liability company
formed on September 8, 1995. The consolidated financial statements
include the accounts of Westport Holdings, L.L.C., and its
majority-owned subsidiary, HEI Hotels, L.L.C. (the "Management
Company"), collectively referred to as the "Company". The minority
interest in the Management Company is immaterial and is owned by
members of the Company. All intercompany transactions have been
eliminated.
The Management Company is a Delaware Limited Liability company formed
on May 19, 1995 to manage and provide various other services to hotel
properties as an agent for the owners of the properties. As of January
2, 1997, the Management Company has agreements to manage eighteen hotel
properties located in thirteen states. The Company also has investments
through six affiliates in six hotels which are described in Note 4.
All profits and losses and distributions are allocated to the members
in accordance with their percentage ownership interests, except for
certain specified special distributions to one of the members.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS:
All highly liquid investments with original maturities of three months
or less when purchased are considered to be cash and cash equivalents.
The Company maintains cash balances primarily in one bank. As the cash
balances held are greater than the FDIC insured amount, the Company
assumes a certain amount of credit risk.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost and is being depreciated using
the straight-line method over the following estimated useful lives.
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
Leasehold improvements Term of Lease
Furniture, fixtures, and equipment 5 to 7
</TABLE>
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition
of property and equipment, the asset and related accumulated
depreciation are removed from the accounts, and any gain or loss is
included in operations.
CONTINUED
F-31
<PAGE> 36
WESTPORT HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DEFERRED CHARGES:
Deferred charges consist of organizational costs and costs related to
potential hotel acquisitions. The hotel acquisition costs are
reimbursed from hotel properties when they are purchased or are
expensed when a decision is made not to purchase the hotel. The
organizational costs are amortized on a straight-line basis over 60
months.
INCOME TAXES:
The financial statements contain no provision for Federal or state
income taxes since the entities are limited liability companies. All
Federal and state income tax liabilities and/or benefits are passed
through to the individual members in accordance with the Internal
Revenue Code.
INVESTMENT IN AFFILIATES:
Investments in affiliates are accounted for under the equity method.
FISCAL YEAR:
The Companies' fiscal year comprises 52 and 53 weeks, ending on the
Thursday closest to December 31. The 1996 fiscal year ended on January
2, 1997.
LONG-LIVED ASSETS:
Effective December 29, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived assets and for Long-Lived Assets to Be Disposed Of."
Pursuant to SFAS 121, the Company assesses the recoverability of its
long-lived assets based upon projections of undiscounted cash flows
over the life of such assets. In the event that such cash flows are
insufficient, the assets are adjusted to their net realizable value.
The application of FAS 121 did not have a material effect on the
financial statements of the Company.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
CONTINUED
F-32
<PAGE> 37
WESTPORT HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. COMMITMENTS:
MANAGEMENT FEES:
The Management Company has agreements to manage the following hotels.
<TABLE>
<CAPTION>
MANAGEMENT BASE
AGREEMENT MANAGEMENT OWNERSHIP
HOTEL EXPIRATION DATE FEE INTEREST(c)
------------------------------ ---------------- ---------- -----------
<S> <C> <C> <C>
Norfolk Omni December 1997(a) 3.00% 60%
Princeton Residence Inn March 2001 3.00% 1%
Wilmington Hilton December 1997(a) 2.50% --
Danbury Hilton February 2009 4.00% 1%
Atlanta Embassy Suites January 2009 3.00% 13.6%
Novi Hilton December 1997(a) 3.00% 60%
Edison Crown Plaza December 1997(a) 3.00% 60%
BWI Airport Marriott December 1997(a) 3.00% 60%
Bethesda Ramada Inn June 1999 3.00% --
Sheraton Long Island (b) 2.50% --
The Park Ridge at Valley Forge August 2015 3.00% 20%
Long Beach Sheraton October 2015 3.00% 20%
Charleston-Hilton December 2015 3.00% 20%
Grand Juncton Hilton December 2001 2.25% --
Sheraton Crown Houston September 2016 3.00% 20%
Sonoma County Hilton October 2016 3.00% 20%
Crystal City Courtyard November 2016 3.00% 20%
Ontario Hilton November 2016 3.00% 20%
</TABLE>
(a) Agreements automatically renew yearly unless termination actions, as
defined, are taken.
(b) Sheraton Long Island agreement is in effect until 60-days' written
notice of termination is given.
(c) This column represents the contractual ownership interest that the
Company and certain affiliated entities have in the respective hotel.
These affiliated entities have certain owners that also have
ownership in the Company.
The base management fee is calculated based on the hotels' gross
revenues, as defined. The Management Company is also eligible to
receive incentive management fees from certain hotels. During 1997,
the Management Company received incentive management fees of
approximately $453,000 related to four of the above hotels.
The Management Company also receives asset management fees related to
five hotels (including three nonmanaged hotels), and accounting and
advertising fees related to eighteen of the hotels.
Accounts receivable as of January 2, 1997 includes $779,554 from
affiliates.
CONTINUED
F-33
<PAGE> 38
WESTPORT HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FUTURE LEASE OBLIGATIONS:
The Company leases office space under an agreement expiring in 2005. The
lease requires a letter of credit in the amount of $117,680 which is
collateralized by a cash deposit of the same amount. The minimum future
rent payments are as follows:
<TABLE>
<CAPTION>
YEAR
----------
<S> <C>
1997 $ 235,360
1998 235,360
1999 235,360
2000 235,310
2001 235,310
Thereafter 741,384
----------
$1,918,084
==========
</TABLE>
Rent expense for fiscal 1996 was $186,307.
MEDICAL PLAN:
The Management Company provides group medical benefits for all of its
employees and for all employees of the hotels that it manages. The medical
benefits are self-insured up to a determined amount for each occurrence
and in aggregate. Costs in excess of these amounts are covered by an
umbrella insurance policy. The Management Company and the hotels that
participate are charged an amount equal to their actual costs up to the
self-insured amount and a portion of the insurance premiums based on the
number of employees as a percentage of all employees covered. During
fiscal 1996, the Management Company incurred approximately $44,000, net of
employee contributions for this coverage.
RETIREMENT PLAN:
Substantially all the personnel employed by the Management Company are
eligible and participate in a 401(k) defined contribution plan. The
Management Company was required to make contributions of approximately
$42,000 for fiscal 1996.
DEFERRED COMPENSATION:
The Management Company currently has a deferred compensation program for
one of its key executives. The compensation payable within the program is
based on a percentage of the increase in the value of certain hotel
properties (currently managed by the Management Company) over each of the
respective property's initial cost basis. This benefit will vest to the
executive over a three-year period beginning May 18, 1995. Compensation
expense under this program amounted to $1,076,170 for fiscal 1996. The
balance sheet of the Company includes a liability of $1,146,170 related to
this program as of January 2, 1997.
CONTINUED
F-34
<PAGE> 39
WESTPORT HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Effective December 29, 1995, the Company instituted an additional deferred
compensation plan for the benefit of its current president. This program
will provide for various levels of deferred bonus compensation based on
the Company's growth, profitability and other factors. There is no
liability with respect to this plan as of January 2, 1997.
4. INVESTMENTS IN AFFILIATES:
During fiscal 1996, the Company invested approximately $1,158,000 for a 90
percent interest in four affiliated partnerships. In the prior year, the
Company invested approximately $605,000 for a 90 percent interest in two
other affiliated partnerships. Each of the affiliated partnerships then
invested the proceeds for a 20 percent ownership interest in six entities
that each own a hotel (the "Hotels") managed by the Management Company.
The affiliated partnerships receive distributions and are allocated income
and loss from the Hotels based on certain priorities and preferred return
calculations, as defined in the respective Hotels' ownership agreements.
During fiscal 1996, the Company was allocated a loss of $286,077, after
preferred distributions to another partner, and did not receive any
distributions.
Combined unaudited summarized balance sheet information for the six Hotels
are as follows:
<TABLE>
<CAPTION>
JANUARY 2, 1997
---------------
(IN 000s)
<S> <C>
Assets:
Hotel Property, net $128,952
Other 17,213
--------
$146,165
========
Liabilities $ 5,541
Equity 140,624
--------
$146,165
========
</TABLE>
Combined unaudited summarized income statement information for the six
Hotels for fiscal 1996 are as follows:
<TABLE>
<CAPTION>
1996
---------
(IN 000s)
<S> <C>
Revenues $29,577
Expenses 27,180
-------
Net income $ 2,397
=======
</TABLE>
CONTINUED
F-35
<PAGE> 40
WESTPORT HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. TERM PROMISSORY NOTE:
On May 20, 1996, the Management Company entered into a term promissory
note (the "Note") in the original principal amount of $500,000. The
Company has guaranteed the repayment of the Note. The Note requires
monthly principal payments of $10,416 ($124,492 annually) plus interest at
a rate of 8.58% per annum. The Note matures on June 1, 2000, when all
unpaid principal is due.
The Note requires that the Company maintain a ratio of liabilities to
tangible net worth, as defined, of 1.5 to 1.0, tangible net worth, as
defined, of $650,000 until December 31, 1996, when the amount increases to
$1,000,000, and certain other ratios, as defined.
6. SUBSEQUENT EVENT (UNAUDITED):
On January 15, 1997, Starwood Lodging Trust and Starwood Lodging
Corporation (collectively "Starwood") entered into a contract to purchase
certain of the hotels owned by affiliates of the Company, the Management
Company and the principal assets of Westport Holdings, L.L.C. (the
"Transaction"). Pursuant to the Transaction, the owners of the affiliates
and the Company will receive the equivalent of approximately 6,547,500
Paired Units (as adjusted for the three-for-two stock split on January 27,
1997) of Starwood and certain limited partnership interests in Starwood
Partnerships which are convertible into Paired Shares in Starwood and
approximately $112 million in cash and debt assumption. The Transaction is
expected to close in February 1997. In the event that the transaction
closes, management of the Company expects to pay the deferred compensation
and note payable; accordingly, such liabilities have been reclassified as
current liabilities in the accompanying balance sheet.
F-36
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Starwood Lodging Trust and Starwood Lodging Corporation on Forms S-3 (File Nos.
333-13411 and 333-13325) and on Form S-8 (File No. 333-02721) of our report
dated February 6, 1997, on our audit of the consolidated financial statements
of Westport Holdings, L.L.C. as of January 2, 1997, and for the year then
ended, which report is included in the Current Report on Form 8-K dated
February 13, 1997.
Coopers & Lybrand L.L.P.
New York, NY
February 13, 1997
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (Nos. 333-13325 and 333-13411) of Starwood Lodging
Trust and Starwood Lodging Corporation of our report dated February 10, 1997
relating to the combined financial statements of Pru-HEI Hotel Group, which
appears in the Current Report on Form 8-K of Starwood Lodging Trust and
Starwood Lodging Corporation dated February 13, 1997.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
February 13, 1997
